WASHINGTON (MarketWatch) — Paul Krugman would not be caught dead supporting Donald Trump, but his column urging deficit spending to rebuild American infrastructure on the very day the Republican nominee proposed the same thing was an interesting juxtaposition.

While it was refreshing to see Krugman return to solid Keynesian economics, the Nobel Prize-winner sounded positively Reaganesque in his version of supply-side thinking about the need for “public investment in everything from energy to transportation to wastewater treatment.”

The combination of these needs and historically low interest rates “suggests not just that we should be borrowing to invest, but that this investment might well pay for itself even in purely fiscal terms,” Krugman wrote in his column Monday. “Spending more now would mean a bigger economy later, which would mean more tax revenue. This additional revenue would probably be larger than any rise in future interest payments.”

This was exactly the point made by David Malpass, a former Reagan administration economist who now advises Trump, when he was interviewed on CNN after Trump’s policy speech at the Detroit Economic Club on Monday.

Malpass sidestepped a question about whether Trump’s infrastructure spending plans and tax cuts would increase the deficit by pointing out that the federal budget was balanced 10 years after Ronald Reagan’s 1986 tax cuts swelled the U.S. deficit in the short term.

Trump’s effort to stop his slide in the polls by shifting back to policy and away from his narcissistic tantrums will test just how short a memory the American public has.

But the economic-policy message is a powerful one. His narration of the devastation wrought on the American economy is damning for the economic-policy establishment that has guided policy since the 1990s.

In particular, Trump’s liberal citation of studies from the leftist Economic Policy Institute on the damage done by trade pacts makes his argument hard for Democrats to refute — but that doesn’t stop them from trying.

EPI economist Robert Scott sought last month to debunk Trump’s policies after an earlier speech by the Republican nominee in Pennsylvania cited his research numerous times.

While Scott could hardly argue with the analysis of the problem, the gist of his objection was that Trump’s proposals wouldn’t solve them.

For instance, Scott argued in his rebuttal, Trump’s threat to slap tariffs on imports from currency manipulators won’t work. It is true, he acknowledged, that the threat of tariffs has indeed worked in the past — as in the 1985 Plaza Accord to devalue the dollar — it just won’t work anymore because, well, in his opinion, currency markets have grown too massive.

But Trump at least is talking about the problem. Maybe Scott should join his kitchen cabinet and help him fine-tune some of these solutions.

Trump’s argument is that not only is Hillary Clinton not talking about these problems but is at the root of them and counting them as her major achievements.

“She is the candidate of the past,” Trump said in Detroit, with a theme that runs throughout the speech. “Ours is the campaign of the future.”

When she addresses economic policy later this week, also in Detroit, Hillary Clinton will no doubt stress how prudent she will be in managing government spending.

Ironically, that balanced budget attributed by Malpass to Ronald Reagan’s tax cuts occurred during Bill Clinton’s administration, and is routinely cited by Hillary Clinton as evidence of how reliable she will be in limiting the deficit.

With her bevy of deficit-hawk advisers, Clinton, who also plans to spend money on infrastructure, will no doubt trot out one of the most noxious tenets of the reigning economic orthodoxy — that every new program of hers will be “paid for.”

It is a well-established fact that Republican administrations, for all their preaching about the dangers of a deficit, don’t hesitate to run up the deficit when it suits their purpose.

It is also a fact, though you would never know it listening to politicians and mainstream journalists, that the federal deficit, certainly in the last several decades, has not hurt anyone, has not crowded out other borrowers, has not held back growth, and won’t do any harm in the foreseeable future.

On the other hand, misguided policies to reduce the deficit when it wasn’t necessary and to cut back government spending on everything that benefits the public have caused palpable damage.

Trump’s argument to take in on faith that his tax cuts will generate growth and pay for themselves in increased prosperity and higher tax revenue are as credible as those made by Reagan.

In particular, the excessively high corporate tax rate can be blamed for incentivizing U.S. companies to locate operations abroad and, worse, to keep their profits abroad instead of repatriating them and investing them at home. Trump is proposing to cut the tax rate to 15% from 35%.

“We can use this new wealth to rebuild our military and our infrastructure,” Trump said of the impact of his policies on tax and trade. And later, “We will build the next generation of roads, bridges, railways, tunnels, sea ports and airports that our country deserves.”

Malpass made the case in his CNN interview that these policies will accelerate growth in this country to at least 4% a year from the sluggish 2% a year average under President Barack Obama and go perhaps as high as 8%.

When Clinton outlines her economic vision in Detroit, it will be hard for her to argue that she can improve on Obama’s record by keeping his policies.

Voters will still feel uneasy about Trump’s temperamental fitness for office, but the bad news for the Democrats is that he has a more compelling argument on the economy.

Darrell
Delamaide

Darrell Delamaide is a political columnist for MarketWatch in Washington. Follow him on Twitter @MKTWDelamaide.

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